<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/ x / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________.
Commission File No. 0-18553
ASHWORTH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1052000
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
2791 LOKER AVENUE WEST, CARLSBAD, CA 92008
(Address of principal executive offices) (Zip code)
(Registrant's telephone no. including area code) (619) 438-6610
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days, Yes X No _____
-----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at AUGUST 31, 1995
Common Stock, $0.001 Par Value 11,881,929
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEET 1
STATEMENTS OF OPERATIONS 2
STATEMENTS OF CASH FLOWS 3
NOTES TO FINANCIAL STATEMENTS 4-5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 6-8
PART II - OTHER INFORMATION 9
SIGNATURE 10
</TABLE>
<PAGE>
ASHWORTH, INC
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31 October 31
1995 1994
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 1,239,645 $ 5,344,244
Accounts receivable - Trade 18,425,508 8,697,118
Accounts receivable - Other 584,320 706,995
Inventories 22,648,683 18,891,063
Deferred income tax benefit 772,978 69,222
Other current assets 1,818,987 904,497
----------- -----------
Total current assets 45,490,121 34,613,139
PROPERTY AND EQUIPMENT 13,376,045 11,772,888
Less accumulated depreciation (3,830,169) (2,545,261)
----------- -----------
9,545,876 9,227,627
CAPITAL LEASES 3,562,446 3,538,376
Less accumulated amortization (1,304,975) (1,032,665)
----------- -----------
2,257,471 2,505,711
OTHER ASSETS 1,011,769 972,669
----------- -----------
$58,305,237 $47,319,146
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 5,725,000 $ 0
Current portion of long-term debt 1,534,039 1,445,500
Accounts payable - trade 4,571,294 6,037,529
Income tax payable 1,155,697 24,364
Accrued salaries and commissions 1,263,273 757,949
Accrued liabilities - other 1,163,981 354,326
---------- -----------
Total current liabilities 15,413,284 8,619,668
LONG-TERM DEBT, less current portion 5,394,639 5,773,504
STOCKHOLDERS' EQUITY
Common stock 11,882 11,575
Capital in excess of par value 22,437,184 21,085,858
Retained earnings 15,221,637 12,039,991
Deferred compensation (173,389) (211,450)
----------- -----------
Total stockholders' equity 37,497,314 32,925,974
----------- -----------
$58,305,237 $47,319,146
=========== ===========
</TABLE>
1
<PAGE>
ASHWORTH, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended July 31 Nine months ended July 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $20,385,985 $16,959,106 $61,415,534 $49,268,714
Cost of sales 12,764,800 9,694,887 39,261,421 29,153,965
----------- ----------- ----------- -----------
Gross Profit 7,621,185 7,264,219 22,154,113 20,114,749
Selling, general and administrative expenses 5,960,483 4,593,945 15,709,794 11,972,662
----------- ----------- ----------- -----------
Operating Profit 1,660,702 2,670,274 6,444,319 8,142,087
Other income (expense):
Interest income 12,428 18,925 40,662 51,778
Interest expense (322,142) (152,910) (797,835) (444,704)
Other income (expense) (13,146) 28,361 (18,086) 72,030
----------- ----------- ----------- -----------
Total other income (expense) (322,860) (105,624) (775,259) (320,896)
Net Profit before income tax 1,337,842 2,564,650 5,669,060 7,821,191
Income tax provision 529,625 1,036,996 2,244,774 3,093,960
----------- ----------- ----------- -----------
Net Earnings $ 808,217 $ 1,527,654 $ 3,424,286 $ 4,727,231
=========== =========== =========== ===========
Earnings per Common and Common share equivalent:
Primary:
Weighted average shares outstanding 12,235,566 12,149,443 12,137,042 12,220,505
Net earnings per share $0.07 $0.13 $0.28 $0.39
Fully diluted:
Weighted average shares outstanding 12,236,827 12,185,444 12,109,560 12,220,505
Net earnings per share $0.07 $0.13 $0.28 $0.39
</TABLE>
2
<PAGE>
ASHWORTH, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended July 31
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net cash used for operating activities ($8,812,347) ($2,695,929)
Cash flows from investing activities:
Purchases of property and equipment (1,599,774) (6,346,208)
Purchase of Golf Wholesale, U.K. 0 (222,930)
Proceeds from sale of equipment 2,800 14,100
----------- -----------
Net cash used for investing activities (1,596,974) (6,555,038)
Cash flows from financing activities:
Proceeds from issuance of common stock 964,355 976,832
Proceeds from revolving line of credit 10,775,000 4,195,000
Principal payments on revolving line of credit (5,050,000) (4,195,000)
Proceeds from long-term borrowings 713,323 4,170,190
Principal payments on long-term debt (569,229) (363,812)
Principal payments on capital lease obligations (528,727) (484,071)
----------- -----------
Net cash provided by financing activities 6,304,722 4,299,139
Net increase (decrease) in cash and
cash equivalents during the period (4,104,599) (4,951,828)
Cash and cash equivalents at beginning
of the period 5,344,244 7,700,777
----------- -----------
Cash and cash equivalents at end of the period $ 1,239,645 $ 2,748,949
=========== ===========
</TABLE>
3
<PAGE>
ASHWORTH, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1995
NOTE 1 In the opinion of management, the unaudited financial statements
contain all adjustments (consisting of normal accruals) necessary to present
fairly the financial position as of July 31, 1995; the results of operations for
the three and nine months ended July 31, 1995 and 1994; and cash flows for the
nine months ended July 31, 1995 and 1994, in conjunction with the audited
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended October 31, 1994.
NOTE 2 Inventories consisted of the following at July 31, 1995, and October
31, 1994.
<TABLE>
<CAPTION>
July 31 October 31
1995 1994
----------- -----------
<S> <C> <C>
Raw material $ 4,383,512 $ 5,767,455
Work in process 2,218,721 1,668,014
Finished goods 16,046,450 11,455,594
----------- -----------
$22,648,683 $18,891,063
----------- -----------
</TABLE>
NOTE 3 The Notes Payable balance of $5,725,000 reflects the amount
outstanding on the Company's bank line of credit. (See "Financial Condition.")
NOTE 4 During the nine-month period, long term debt and the current portion
of long term debt decreased by $290,326. The Company entered into a new capital
equipment finance agreement for $807,629 and principal repayments on equipment
finance agreements and capital leases were $1,097,955.
NOTE 5 Earnings per share amounts are computed based on the weighted
average number of shares actually outstanding plus the shares that would be
outstanding assuming the conversion of the outstanding dilutive options, all of
which are considered to be Common Stock equivalents. The number of shares that
would be issued from the exercise of stock options has been reduced by the
number of shares that could have been purchased from the proceeds at the average
market price of the Company's Common Stock.
4
<PAGE>
NOTE 6 During the nine months ended July 31, 1995, the Company purchased
and immediately retired 67,300 shares of its Common Stock from two officers and
one stockholder. The shares were purchased at the last trade price of a 100-
share lot of the Common Stock on the NASDAQ National Market System on the last
trading day preceding the date of the transactions. The cost to the Company was
$585,112, and the proceeds were used to pay the exercise price of stock options
exercised by the two officers and to repay a loan owing by the stockholder.
Following these transactions, share capital and additional paid-in capital were
reduced by $342,472 and retained earnings reduced by $242,640.
5
<PAGE>
PART I.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated Sales for the quarter were $20.4 million, an increase of 20%
over sales of $17.0 million for the same period in 1994. The increase was
primarily due to increased sales volume. Sales in the Company's four main areas
of business were as follows:
<TABLE>
<CAPTION>
JUL QTR 95 JUL QTR 94 CHANGE
----------- ----------- -------
<S> <C> <C> <C>
Domestic golfwear $13,356,624 $12,565,744 + 6%
Foreign sales 4,769,777 3,048,671 + 56%
Ashworth Harry Logan 723,230 337,615 +114%
Outlet stores 1,536,354 1,007,076 + 53%
----------- -----------
Total sales $20,385,985 $16,959,106 + 20%
----------- -----------
</TABLE>
Domestic sales of Ashworth golfwear in the quarter were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Apparel $12,071,064 $11,602,634 + 4%
Shoes* 622,218 0 n/c
Hats 663,342 963,110 -31%
----------- -----------
$13,356,624 $12,565,744 + 6%
----------- -----------
</TABLE>
*Shipments of shoes commenced in January 1995.
Foreign sales in the quarter were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales to International
Distributors $ 4,597,164 $ 3,171,199 + 45%
Inter-company sales (632,289) (595,192) + 6%
Ashworth U.K., Ltd 804,902 472,664 + 70%
----------- -----------
$ 4,769,777 $ 3,048,671 + 56%
----------- -----------
</TABLE>
Sales for the nine months increased by 25% to $61,415,534 from $49,268,714
for the same period in fiscal 1994.
Gross margin for the quarter was 37.4% of net sales after an inventory
reserve increase of $500,000. Without the inventory reserve increase, the gross
margin would have been 39.8% compared to 42.8% for the third quarter of fiscal
1994, which gross margin was reported in the Company's 10-Q for that quarter as
being higher than expected trends.
6
<PAGE>
Gross margin for the nine months ended July 31, 1995 was 36.1% compared to
40.8% for the same period in 1994. During the nine months ended July 31, 1995,
inventory reserve was increased by a total of $2,300,000, absent which, the
gross margin for the period would have been 39.8%. The increase in lower margin
international and outlet store sales as a percentage of total sales contributed
to the decrease in the overall gross margin.
Absent the increase in inventory reserve, the third quarter (39.8%) and
year to date (39.8%) gross margins are comparable to fiscal year 1994 gross
margin of 39.3%.
Selling, general and administrative expenses increased to 29.2% of net
sales in the quarter compared to 27.1% for the third quarter in 1994. The SG&A
expenses for the nine months ended July 31, 1995 were 25.6% of net sales
compared to 24.3% for the comparable period in fiscal 1994. The increases are
attributable to lower than expected sales due to late delivery of product caused
primarily by the conversion to a new MIS software package; increased expenses in
completing the software conversion; continued development of the Ashworth Harry
Logan line; the extension of Ernie Els' promotion agreement; and the costs of
opening two additional factory outlet stores. Absent the impact of these items,
SG&A expenses as a percentage of sales for the third quarter and the nine month
period would have been 25.4% and 23.3%, respectively.
Other income (expense) shows a net increase in expense of $217,000 for the
quarter and $454,000 for the nine months ended July 31, 1995. The major portion
of this increase is attributable to the interest on borrowings on the bank line
of credit which were $168,000 higher for the quarter and $323,000 higher for the
nine months than the comparable periods in 1994.
Net income for the quarter decreased 47.1% to $808,217 or $.07 per share
compared to $1,527,654 or $.13 per share in 1994. Net income for the nine months
decreased 27.6% to $3,424,268 or $.28 per share compared to $4,727,231 or $.39
per share in 1994. The reasons for the decline are outlined under the
discussions on gross margin and Selling, General and Administrative expenses.
FINANCIAL CONDITION
The Company has a working capital line of credit with Bank of America.
For the peak inventory period from February through May, the Company can borrow
up to $13 million and for the remainder of the year, up to $10 million. At July
31, 1995 borrowings against the line were $5,725,000. At August 30, 1995,
repayments by the Company had reduced the balance outstanding to $4,375,000.
The line of credit is renewable on November 1, 1995.
7
<PAGE>
Trade receivables balance were $18,426,000 at July 31, 1995, an
increase of $9,728,000 over the balance at October 31, 1994. Because the
Company's business is seasonal, with the greatest volume of sales taking place
between February and July, the receivables balance should be compared to the
balance of $14,386,000 at July 31, 1994 rather than the balance at October 31,
1994. This comparison shows an increase of 28% in receivables compared with an
increase of 20% in sales over the prior year's quarter. However, approximately
$11.6 million of the Company's sales took place in the month of July 1995, and
$6.5 million in June, mostly with credit terms that did not require payment
before July 31.
Share Capital and Capital in Excess of Par Value increased by $1,352,000
during the nine months from October 31, 1995. This increase was the net result
of the exercise of options for 374,761 shares of common stock and the purchase
by the Company of 67,300 of its own shares which were immediately retired. (See
Note 6 to the financial statement.)
The Company's subsidiaries have entered into leases for two additional
factory outlets during this quarter, one in Phoenix, Arizona, which will open in
September 1995, and the other in Las Vegas, Nevada, which is expected to be
opened in the summer of 1996. The Company has guaranteed up to $68,000 of the
obligations of the subsidiary under the lease for the Las Vegas, Nevada, store.
8
<PAGE>
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS - NONE
ITEM 2 CHANGES IN SECURITIES - NONE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5 OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
10(o)(5) Guaranty of Registrant dated July 21, 1995, guaranteeing the
obligations of its wholly owned subsidiary, Ashworth Store I, Inc.,
on a lease for the Las Vegas, Nevada, factory outlet store, up to a
maximum of $68,000.
27 Financial Data Schedule
REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the fiscal quarter ended
July 31, 1995.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASHWORTH, INC.
(Registrant)
Date: September 13, 1995 /s/ Richard H. Werschkul
--------------------- -------------------------------
Richard H. Werschkul
President and
Chief Executive Officer
Date: September 13, 1995 /s/ A. John Newman
--------------------- -------------------------------
A. John Newman
Chief Financial Officer
10
<PAGE>
EXHIBIT 10(0)(5)
GUARANTY OF LEASE
In order to induce FOM VEGAS II, LIMITED PARTNERSHIP, (hereinafter
"Landlord") to execute that certain Lease Agreement (the "Lease") by and between
Landlord and ASHWORTH STORE I, INC., a Delaware corporation, as tenant
("Tenant") for premises located at BELZ FACTORY OUTLET WORLD (MALL II), 7400
South Las Vegas Boulevard, Las Vegas, Nevada 89123, Space #230 consisting of
approximately 2,453 square feet, (the "Premises") a copy of which is attached
hereto and made a part hereof, the undersigned, whether one or more, jointly and
severally, hereby unconditionally guarantees the payment and performance of, and
agrees to pay and perform as a primary obligor, all liabilities, obligations,
and duties (including, but not limited to, payment of rent) imposed upon Tenant
thereunder up to an aggregate maximum of $68,000.00. The liability of the
undersigned shall also be reduced by the amount of any security deposit actually
applied by Landlord to discharge the liability of Tenant following an event of
default.
The undersigned hereby waives notice of acceptance of this guaranty and all
other notices in connection herewith or in connection with the liabilities,
obligations and duties guaranteed hereby, including notices of default by Tenant
under the Lease, and waives diligence, presentment, and suit on the part of
Landlord in the enforcement of any liability, obligation, or duty guaranteed
hereby.
The undersigned further agrees that Landlord shall not be first required to
enforce against Tenant or any other person any liability, obligation, or duty
guaranteed hereby before seeking enforcement thereof against the undersigned.
Suit may be brought and maintained against the undersigned by Landlord to
enforce any liability, obligation or duty guaranteed hereby without joinder of
Tenant or any other person. The liability of the undersigned shall not be
affected by any indulgence, compromise, settlement, or variation of terms which
may be extended to Tenant by Landlord or agreed upon by Landlord and Tenant.
Landlord and Tenant, without notice to or consent by the undersigned, may at any
time or times enter into such modifications, extensions, amendments, or other
covenants respecting the Lease as they may deem appropriate, and the undersigned
shall not be released thereby, but shall continue to be fully liable for the
payment and performance of all liabilities, obligations, and duties of Tenant
under the Lease, as so modified, extended or amended.
The liability of the undersigned hereunder shall in no way be affected by
(a) the release or discharge of Tenant in any creditor, receivership,
bankruptcy, or other similar proceedings; (b) the impairment, limitation, or
modification of the liability of Tenant or the estate of Tenant in bankruptcy or
of any remedy for the enforcement of Tenant's liability under the Lease
resulting from the operation of any present or future provisions of the Federal
Bankruptcy Code or other statute or from the decision of any court; (c) the
rejection or disaffirmance of the Lease in any such proceedings; (d) the
assignment or transfer of the Lease by Tenant; or (e) any disability or other
defense of Tenant.
Until all the covenants and conditions in the Lease on Tenant's part to be
performed and observed are fully performed and observed, the undersigned (a)
shall have no right of subrogation against Tenant by reason of payments or acts
of performance by the undersigned in compliance with the obligations of the
undersigned hereunder; (b) waives any right to enforce any remedy which
undersigned now or hereafter shall have against Tenant by reason of any one or
more payments or acts of performance in compliance with the obligations of the
undersigned hereunder; and (c) subordinates any liability or indebtedness of
Tenant now or hereafter held by the undersigned to the obligations of Tenant to
Landlord under the Lease.
This Guarantee shall apply to the base lease term and any extension or
renewal thereof and to any holdover term following the base term or extension or
renewal thereof. The liability of the undersigned shall not exceed an aggregate
maximum of $68,000.00.
This Agreement shall be binding upon the undersigned and the heirs,
executors, and legal representatives of the undersigned, and shall inure to the
benefit of Landlord and its successors and assigns.
This Agreement shall be governed by and enforced in accordance with the
laws of the state in which the Premises are located.
This Guaranty may not be changed or terminated orally.
EXECUTED this 21st day of July, 1995.
GUARANTOR: ASHWORTH, INC.
BY: /s/ R.H. Werschkul
---------------------
R.H. Werschkul
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 1,239,645
<SECURITIES> 0
<RECEIVABLES> 19,394,489
<ALLOWANCES> 384,661
<INVENTORY> 22,648,683
<CURRENT-ASSETS> 45,490,121
<PP&E> 16,938,491
<DEPRECIATION> 5,135,144
<TOTAL-ASSETS> 58,305,237
<CURRENT-LIABILITIES> 15,413,284
<BONDS> 5,394,639
<COMMON> 11,882
0
0
<OTHER-SE> 37,485,432
<TOTAL-LIABILITY-AND-EQUITY> 58,305,237
<SALES> 61,415,534
<TOTAL-REVENUES> 61,415,534
<CGS> 39,261,421
<TOTAL-COSTS> 54,971,215
<OTHER-EXPENSES> 18,086
<LOSS-PROVISION> 154,380
<INTEREST-EXPENSE> 757,173
<INCOME-PRETAX> 5,669,060
<INCOME-TAX> 2,244,774
<INCOME-CONTINUING> 3,424,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,424,286
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
